For over twenty years, today’s guest has been part of an entrepreneurial father and son team that has helped the owners of privately held small and mid-size businesses build, maximize and realize the value in their businesses and prepare for profitable exits.
Please welcome Michael Vann.
- 0:16 – Michael on Forbes Community
- 0:56 – Michael’s Background
- 4:26 – Educating Buyer and Seller
- 12:20 -The biggest factor that contributes to the Transaction
- 16:33 – Calculating
Learn more about this guest:
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Michael van everybody. Hey Michael, thanks so much for jumping on today. Thanks for having me Damon. It’s great to be here. So, uh, you and I are fellow Forbes council members. And how have you enjoyed and leverage that Forbes, Forbes community? How long have you been doing that? Uh, about a year right now. Um, and I didn’t, I didn’t really dive into it as much, probably the first six months or so last year, but they’ve since started focused on writing more articles and getting involved in some of the communities and just kind of paying attention.
So it’s been, it’s been great. It gives you a great, um, uh, Avenue to, to reach out to a lot of business owners. Yeah. Yeah. About, same for me about it. About a year. It’s been cool. Um, well, Hey. Yeah, I want to let’s do like the crash course intro and then obviously we’ll dig in deeper. And so I like to ask two questions, one on a more serious note and one more of a joke.
So question one is what are you good at? What are we going to be talking about today? And question two is what are you not so good at? So from a, from a good ed standpoint, we’ve, uh, you know, it’s funny consultant since basically the day I walked out of college. So no real world experience from that standpoint just walked right into the business, but I’ve always been very good at providing our clients with very practical.
Common sense advice on their business challenges. And that’s really, um, come into three areas. One is certainly in the value building space. The second is in an area we’re very, very passionate about is the succession and transition planning space. And as a byproduct, the merger and acquisition side of things.
So helping, helping business owners actually realize the value that they’ve built in their company and sell them. So that’s certainly on the, on the good side and on the bad side, I think I’d probably like a lot of business owners and entrepreneurs. Absolutely horrible at delegation. I get to find anyone can do anything as good as I can.
So it’s funny, the entrepreneur, like that goes one way or the other it’s totally polar. You either get the people that say, Nope, not my thing or the other people that say I can’t survive without delegating. Yeah. I’m, I’m working on it, but I’m, I’m one of those ones. If I have a task list, I just go and I get it done.
That’s what I need to do. So. Well stuff. I dropped the ball. As your intro mentioned, you’re part of an entrepreneurial father and son team. So are you the father or are you, uh, fortunately I’m the son. So is that kind of what brought you, brought you into where you said you walked straight into business, as you said without real world experiences, is that because you’re able to walk right in underneath your father’s wing?
Not quite, I got started in corporate working for a big fortune 500 consulting firm, you know, and I think that’s pretty, pretty common for out of school. Go to work for a big company. I did that for about two or three years and just got absolutely sick of not actually producing anything of value that was going to get implemented and executed.
So out of frustration, I talked to my father about the. The family business. He said, well, why don’t you come home and join us here and start up the consulting firm. And so that was in 1999 and I figured, well, we’ll give it a shot in the air. I am almost 21 years later, still consulting. Very cool. Now we, you know, we’ve had other guests talk about how well, the importance of buying a business and, you know, the, the different ways they can go about it financially.
But I think the value that you could bring to the discussion that’s a little bit different is maybe we talk about more about the why’s both for the buyer and seller and kind of educate owners about the importance of. Proactively planning their exit. So a couple things come to mind and we can kind of start or wherever with these.
So for example, on the buyer side, maybe we talk about the different types of exits, whether it’s selling for cash or, you know, selling, but retaining some residual equity or merging. And then on the, on the seller side, um, you know, actually I got that backwards on the, on the buyer’s side. Um, you know, Different reasons people sell, because I think a lot of people, um, Overthink why somebody would sell.
And they, a lot of people always think, well, it’s gotta be for a big financial windfall and that’s not always the case. And I have some examples we can get into where sometime it’s health-related issue. Sometimes it’s just burnout. Sometimes it’s a personal crisis. Um, so I think there’s a lot of different Ys that we can talk about between buyers and sellers.
I’ll let you pick your favorite Avenue of choice to start with. Sure. I think it probably makes sense to start with the, with the seller side, because those are, that’s always the kind of starting point of companies not available for, you know, to be bought until the seller makes a conscious decision that they’re willing to entertain that.
Um, in the challenge we’ve always seen with, with sellers is that. They, they know they want to get out of the business someday. They kind of started the business with the expectation that there would be some, some value there, but they’re, they’re never really prepared. In most cases. I think there’s a stat of only 25% of a business owners have really done any succession or transition planning.
I was just working on a presentation last night, looking at some, some data and for smaller business, it’s something like 80% of them never had been any, any planning before they, they sold. So it’s, it’s always something that everyone, it keeps in their mind when they’re going to sell the business, but never really gives a thought to what an exit looks like.
Um, so what we see happens a lot is we might get engaged by client too. Who’s starting to think about it, but more often that would get a call from someone who’s just kind of hit this tipping point in their life. Where they decide it’s time to sell the business. You know, we had one client who was a, did a lot of traveling, a lot of training for a client.
He was sitting out in Montana having a cup of coffee, looking out at the mountain range in the morning and looked and said, why am I doing this anymore? And, and that was the moment that was the trigger hadn’t thought about selling at any time beforehand, but that was the definitive moment he needed.
Just like that moment of clarity that now’s the time. So we see that quite a bit, and then there’s always those other, other reasons retirement is coming along or, you know, there’s health issues that certainly, uh, pop up. We unfortunately have to deal with those from time to time. And other times it’s people, you know, just get burnt out from the business.
They want to do something different in life. Um, so that’s a, that’s a big driver. You know, I think a lot of people look at certain business and go, wow, that business is a complete gold mine. They must just actually kill it, but they don’t see any of the behind the scenes of what’s going on with employees and the financing side and what the business looks like when, you know, the customers aren’t in the, in the place.
So, you know, we do see a lot of burnout happening with a lot of business owners today. As one of the reasons why they they’re contemplating a sale, if you had to take a guess, excuse me, if you had to take a guess on kind of a percentage of what businesses are started with an exit in mind versus, you know, they’re already way down the path of an established business before they start to figure out that game plan.
I’m assuming that the majority of business owners don’t start with an exit in mind. No, they don’t. I mean, and I don’t know what the percentage was, but I think if you were to. Talk to most business owners, unless they were, you know, going after them, the venture capital and angel and stuff to get funded initially and scale, most of them started business because they saw an opportunity duty and they were tired of working for somebody and just wanted to focus on something they are really good at, you know, and it gave them the flexibility to do, do that and like give them the opportunity to make a little bit more money.
So that, that exit wasn’t really. You know the mindset, it was just something that suddenly I’ve been doing this for 30 years. Maybe I have something of value here and I can, I can sell it. Perhaps I should start to think about, you know, what an exit looks like. Is there kind of on the same topic about taking a guess on percentages you had just kind of randomly mentioned 30 years.
Do you see a consistent year span or timeframe that business owners have invested in their business before they decide to exit. With most of them, unless it’s like a second, uh, you know, a second career, you know, they’ve probably been with the business 30, 40 years. Um, a lot of our started and when they were in their mid twenties or they acquired it, um, I think you see it a little bit of a change.
Um, you know, as we’re getting, you know, as a, as gen X is becoming more business owners, you’re seeing them acquire businesses a little bit later in life and their mid forties. But most of our businesses that we sell, you know, the one we just sold the other day, it was 40 years. Two brothers, you know, we started the business in 1979 and finally to sell, decided to sell.
And I think that’s a pretty common window is that 25 to 40 years, you know, someone’s, uh, someone’s been in for that long of a time. So why don’t you walk us through, what’s it like to work with you? Walk us through the exit planning process, where do you begin? So the exit planning process, we try to make, ‘em very how I say, I don’t want it to be intimidating because it’s one of those topics that.
People don’t like to bring up, which is why most companies don’t don’t do it because it implies well, the end, you know, none of us like to think about the end because the end means death. It means the end of the road and all those different, different types of things. So we try to make the process, um, very conversational and relaxed and allow the client to kind of dictate the pace on that.
Um, so it starts with an informal discussion. As to what are they looking to achieve? You know, understanding, you know, who the players are and their scenario, what they’ve done for planning or haven’t done for planning financially, you know, if there’s kids or, um, you know, partners involved in the business, how their spouse looks at the business.
And we start from, from that standpoint. So just in a very general informational gathering, start the process. From there, it starts to move into more of a, you know, analytical exercise where we might, you know, develop a valuation on the business interview, key employees, um, other stakeholders in the business.
Maybe there’s a spouse. Who’s going to be interviewed because they’ve got a. You know, they’ve got a say in what’s going to happen with the business. So start to do more of a formal, uh, informational gathering process. And then from there we bring back our findings. So it’s, you know, we give the owner an outside perspective of this is what we see as to the business and its viability as to, uh, you know, being sold.
You know, what the viability is, might be of a internal transaction versus an external one, and start to lay out all the various options that are available for them. From there, they can then choose which options do they do. They want to pursue? Um, you know, it’s almost like you have a board and you can say, well, I liked the idea of selling internally, and this is, you know, and I’ve got these couple of key employees, what are my options on how to do that?
Or, you know, what I’m interested in selling to the marketplace? You know, what do we need to do to get our value to the point where someone’s going to want to acquire us? And from there, we’re then able to start to build a plan. To effect that, uh, that transition plan, you know, so it might be, or we going to develop your management and leadership team because we got to get ready for a sale.
It might be, we’re gonna have to start the documentation process and gifting process with your, with your family. Or we’re going to have conversations with your lawyers and bankers and accountants to start to affect this Tran transition. And from there, it just comes down to the execution side. And, you know, I make it sound like it’s a very orient step oriented process, but the, this can take several years to go through because there’s a tremendous amount of emotion involved with this.
You know, this is not just like selling your house. You know, there’s so much, that’s tied up for an owner in their, their business ownership. It’s their identity, you know, it’s their source of cashflow. It’s their, um, you know, it’s, it’s just so many things to them in their life. I mean, they spend 50, 60, 70 hours there, uh, with the business in most cases every week, you know, most of us don’t spend that much time with our families every week.
So going through this process is, you know, it can be painful. It can be a ups and downs on the emotional roller coaster. So there’s a lot of interesting topics that you had kind of touched on their length of time on entertaining a sale until the actual exit was what I was going to ask about. And so you had mentioned, it can take up to several years during that time.
I imagine some are obviously much quicker as well, and then some even drawn out what’s the biggest factor that contributes to, uh, you know, how much time that transaction actually takes. I think a lot of it depends on if we’re looking at an external site. Well, we’re looking at where does the owner want to be from valuation standpoint and is the company position today to achieve that?
You know, it’s hard when an owner comes in and says, all right, I’m ready to get out in a year. And I need, you know, $5 million and you’re looking at the value and, you know, it’s a $3 million sale price, you know, to build up that value, to get to that extra 5 million that might take three or four years, it’s not gonna be a year.
Um, cause you’ve got to get the company positioned that way with an internal transition. We have a, you know, to a certain degree, a lot more flexibility because the owner in most cases is probably going to be financing a component of that and they can let small pieces of the company go over a period of time
You know, they can bring in people into the process as they see fit. So they have a lot more control on an internal transition as to when and how that, that gets affected. Now is there kind of an average, I I’ve, I’ve, I’ve talked to other brokers and I’ve had a lot of friends that have had exits. And one thing that seems to vary wildly is the multiples that people will call.
And I imagine a lot of us do with the industries that the businesses in, but what’s kind of the average multiple that people are looking at one settling. So that’s going to, to your point, it’s going to vary depending on size of the company in the industry and in those different, um, factors. I think a good rule of thumb for most small businesses.
And when we’re talking, you know, small businesses as a company, that’s probably going to transact, you know, under a million dollars. So we’re talking maybe a 250,000 to a half, a million dollar EBITDA. No. I think that I was looking at some multiples the other day from BizBuySell and I think they said their average average multiple was 2.3 times the, of the earnings.
Whereas if you’re a, was over a million dollar transaction, it was like 3.6 times. So it varies pretty, uh, pretty wildly, depending on the size of the company and the reason for that as well, the larger companies, you know, there’s, there’s an investment there that it’s the management’s in place.
Everything’s happening. On a smaller company. Someone’s, you know, I hate to say it, but someone’s really buying your job. So how much do they want to pay you for your job? It comes down to the part of the key equation. Why don’t you define, could you define two things for the listeners? One is EBITDA. And then, um, after that, how would you define smaller versus medium sized business?
Okay. So exhibit a is a, you know, if I’m a little financial term known as earnings before interest taxes, depreciation, and amortization, and basically it pulls out the capital associated costs of. Of that, of that business to give you a true picture of cashflow in smile, businesses will use a term called the adjusted EBITDA because we know that most small business owners, midsize business owners, I guess probably call it privately held businesses.
You know, they try to minimize their profits from a tax standpoint. So they might have, you know, cars and vehicle, you know, uh, trips and travel and, uh, kids on the things like that too, to diversify it. So add that back together and the adjusted EBITDA number. There’s also a number you’ll hear a lot in smaller businesses called seller’s discretionary earnings, which is when they use EBIDTA, but they also add the compensation of the owner in there.
It’s again, you’re buying a job, so to speak. So they want to know, well, how much is there to pay myself. And, um, you know, the, the typical EBITDA that we have from a small business standpoint is to what’s a small business, uh, versus what’s not. We kind of use the framework of, is it going to be, um, a sale price over a million dollars or under a million dollars?
Um, no million dollars is definitely going to be a small, small sale, small business transaction, uh, over a million dollars, you know, in our world for most midsize businesses. That’s where we. I would equity groups and, you know, bigger companies have a whole different perspective on, on that model. But for the most part, you know, most business owners can think of it in those terms.
And, and when you’re calculating out EBITDA, how many years of revenue do you typically look at? Okay, so we will usually look at three years, um, in total, what we’re usually focused on though is what we’ll call the trailing 12 month EBITDA, which is the last 12 consecutive months of performance. Because that gives us a really good snapshot about how the business is performing, um, over the, over the most recent period of performance.
So a lot of times you’ll see a transaction price tied to the trailing 12 month EBITDA versus, you know, last, last year exhibitor or something like that. Yeah. Well, one thing that you mentioned that I’ve had some of my friends that have had those exits, uh, talk about is you talked about the identity that a business owner builds up in their business.
And one good friend of mine after his exit, he says, What do I do now? I, I did this every day. Yay. For so many years. And he almost had a bit of an identity crisis for awhile. And, um, you know, I think it’s kind of funny in some ways, because everyone talks about the exit and, you know, sunny days on the beach or whatever their dream is, whether it’s long term or short term after the sale.
But it seems like more people I talk to. That window doesn’t last, very long before they start really wondering who they are anymore. Do you, do you have those conversations very often in the followup process after? So all the time, you know, it’s one of the Kimberly it’s one of the challenges when it comes to a transition planning with an owner is they really have no idea they’re going to do.
Um, I think most business owners can appreciate that you can’t golf every day. And as much as it might sound fun for a little while they start to go to go nuts over it, because they’re not, you know, they’re creators, they’re builders and suddenly they’re not doing that. And you know, that, um, identity is critical because I mean, think about how you introduce yourself or people know who you are so much as, Oh, that’s, you know, Mike, he owns the van group.
You know, that’s um, so it becomes part of your identity and suddenly you’re not, you’re just a guy, you know, you don’t have that, that identity anymore. So it’s really, it’s really hard for individuals. And there’s a stats that show, I think the level of depression that goes up on people who have retired, sold their businesses, like 66% or something like that, because they’re, you know, they’ve lost that piece.
So when we’re doing planning with owners, we have that conversation as to all right, what are you going to do after this? You know, just like you built a business plan. When you started the business, you need to build a business plan for your life post business. You know what you’re going to do. You kind of a more personal question on that.
Um, so you as a broker, why does it matter to you what they do after the exit? So we want to see everyone happy. You know, that there’s nothing, um, you know, you want the closing to be, uh, an exciting time. Because they’re getting a check, they realized a lifelong dream and you don’t want them to suddenly be, you know, questioning it, you know, and, and upset about the fact that they sold their business.
We want them to have that full, happy ending. Right. So it’s, it’s great. You’ve got the, but if you’re not happy afterwards, I don’t care how much money you got at the transaction time. You know, it wasn’t worth it. So we want our clients to be in a good position when they sell. It also can lead from a broker’s standpoint.
It makes it a lot easier. If a client is excited about the sale and what’s coming next, you know, you’re less likely to have those cold feet at the last minute with a deal. That makes sense. How, how often the find that when you do that succession planning that the business owners. Proactively want to transition into new responsibilities or another business.
So, and not doing the golfing all day concept versus the ones that are like, Nope, I’m checked out. Like I may not be golfing every day, but I’m done with the work world. Yeah. I think most of them like the idea of being done for a while. Um, you know, I think a lot of them, when they’re thinking about, I said, well, I’m gonna dabble on, maybe I’ve got the kids, we’re going to do some traveling and then we’ll figure it out.
We maybe do some volunteer work. Uh, that type of thing. So I think most of them are looking for a little bit of a break, you know, to, before they dive into something, you know, we were just a once with partners of ours who sold their, their company a few years ago in, stayed on, you know, so private equity came in and bought it and they were in running it.
And then finally, finally exited. And when we said, all right, you ready to buy another business? And they said, absolutely not. We’re done, you know, we’ve got enough things that we can do. Uh, to keep ourselves busy without outside of business, they were all done with business. Um, so you don’t hear that one all the time, but for the, for the most part, you know, I think if they get back into business, it’s more happenstance than a, than a planned event.
Yeah. You know, I have, I have one good friend of mine. He’s he’s been, um, he has been on the show. SoI won’t mention who it is cause they’ll kind of talk about financials a little bit, but he’s had, um, he, he is the definition of a serial entrepreneur. He’s had four or five exits in 12 years and, and they’ve all been massive sales.
I mean, I guess massive is relative, but they’ve all been over the million dollar Mark. Yep. Um, I imagine that’s pretty rare. It is, you know, and then you do see it sometimes with guys who have really big exits that they do start to try to chase the next one, you know, but you know, if your friend has been successful as a serial entrepreneur, I mean, they are, they are a rare breed.
Yeah. We’ll do it over and over again because it’s so hard to build one company that’s successful. Um, but to build multiple is, is really amazing. Yeah, I’ve been really surprised in such a short time, too. So it’s been interesting to watch, you know, I had, I had a company approach me a VC group years ago and they were interested in acquiring my SEO agency and merging it with another marketing company.
Um, I ended up backing out because part of the discussions just seem kind of slimy. But what I learned was. Two things. It was an, it was an amazing learning experience, looking back. And from my perspective, I learned that buyers want two things. Um, they want a turnkey business, so they can take the keys and run with it.
And then the second thing is they want to know where the fire is, where all your leads cells are coming from so they can just amplify it and pour more fuel on it. Would you agree that those are kind of two core elements that. Buyers are looking for. And is there any noteworthy additions to that list? No, I think you hit it right on, right on.
They want to know that they’ve got a good, strong management team that they can, they can build with, you know, with private equity. A lot of times we’ll see them bring in someone at that next level. Who’s their whole job is to scale the business. You know, who’s going to be out doing the next acquisition.
Who’s going to be out getting those, those, those companies. So, you know, the whole objective when it’s a professional money, whether it’s VC or equity is to. To get to an exit and get to an exit as fast as possible for as much as possible. So anything they can do to accelerate that business, um, is, is going to be their objective.
So good management team, and then knowing, knowing those triggers on, on sales are the drivers to that. Have you ever read the book lost and founder by Rand Fishkin? I have not, um, yeah. Check it out. It’s a really cool it’s. It’s about exits. So for the list, familiar with digital marketing, there’ll be familiar with Rand Fishkin.
He was the founder of a company called Moz, which is a big SEO platform. But the book isn’t really about SEO. I mean, obviously it has a lot of mentions to it, but it’s about his struggles as an owner and the talks about. Uh, the stresses of taking on investments and the unique situations that you run into, um, considering exits.
And one example was he had a company offered to buy him out for something like $28 million. And they ended up saying, no, we based on our trajectory and where we think we’re headed, we want 40. And they said, well, you know, we can respect that, but we’re going to decline. And then later, uh, Come to find out that was the peak of his business and he never got even close to it.
And he talks about the pain of that and the book and how at a $28 million exit, he would have got, I don’t remember like five to 10 million, which is, you know, more than enough for the average person to live on. And he talks about how he could help his family and all these little things. And, um, it was, uh, it was a really interesting book.
Um, Just to get the more transparent perspectives of, of really what can happen and not just the highlight reel. No, and I think that’s, um, you know, I’m going to say a pretty common story, but it’s certainly one that a lot of our clients struggle with is, you know, you bring an offer into them and they go, this is an amazing offer, but should I be selling it this at this point in time?
And I think a lot of people think, well, the first group offered this. Someone’s bound off for us more down the road. And as noted there, that’s not always the case. Sometimes the businesses do peak, you know, at timing is everything. Um, in, in markets, you know, we’re, we were advising our clients, you know, the past year or two, if you’re going to sell, sell, now the market is hotter than it’s ever been.
The multiples will never be better. Yeah. So you kind of have to take advantage of those, those situations when they come. Yeah. Oh, one question I was curious about, you talked about the big differences and an external sale versus an internal sale. And when working on an internal cell, if, if the salary is financing, some of it, do you ever see situations where the buyer defaults and in that situation, what happens?
Does the business go back to the original seller? Yes, it does. So we had, um, we had a guy, I won’t call it a great story cause it’s, you know, a perfect example of that back, you know, in, during the great recession, uh, internal sale. A construction-related company and the, um, uh, finance, basically a good chunk by the, by the seller, but also the bank, you know, the bank that had been there with the company for a long time was very comfortable.
We’ve got our key manager buying it. This’ll be great. You know, the, when the numbers look fantastic and then, you know, the recession hit and the leverage and everything on the deal was just too great to be able to. To be able to sustain, you know, the drop in sales that was, that was there. So, you know, the, the former owner came back in and acquired the company for, you know, a fraction of the, of the price.
And he still owns it today. And coincidentally, the, you know, the back up for sale. Yeah. Buyer’s still there working, you know, and wow. And an opportunity to go back into it, you know, into a minority ownership position. But. Wow. You definitely, you definitely do see those. Do those defaults happen? The good news for you as the, you know, it’s a good news thing is the buyer is the seller is you, you have that opportunity to, to protect yourself in the bank.
He confident in you. That’s why the, um, they usually require you to finance some component of the purchase price. The downside is what you’re selling. Cause you want to get out of the damn thing. You don’t want to be stuck with it. And here you are getting dragged back in. Yeah. Every it’s like every seller’s worst nightmare, but I’ve certainly seen a number of them have done very well, uh, buying their company back.
Yeah. So we’ve talked a lot about sellers. Let’s kind of shift gears to the buyer side for a little bit. I think it’s important as we briefly touched on at the beginning of the recording that, uh, people would be really surprised why. Sell or sell sometimes. Um, you know, an example that comes to mind is I have a good friend.
He’s a, he’s an older, wiser version of me by a couple of decades. And he had, um, multimillion dollar business. I want to say he was doing somewhere between 20 and 50 million a year. And this was like 15 years ago. Um, and he lost a child to SIDS. And he just couldn’t maintain. And so he sold it to his neighbor for like a 10th of the value because he just to check out.
And so it’s, I don’t bring that up. Say it’s a good opportunity for people to take advantage of the circle, but sometimes there are times where Sallers. On their, uh, at their own discretion are willing. Like they just want to get out and it can be a good opportunity for buyers. Um, so why don’t we touch on some of the, the more random examples or maybe good opportunities that buyers can look out for interesting scenarios that you’ve seen, why sellers are selling?
Yeah, I mean, you know, one, uh, one example we have was, it was an absentee owner. Um, and own the business was, you know, more of a financial investor into the business in the business was kind of humming along. Not doing, not doing bad, but not doing great. And, um, That kind of bad management in place, but there was a, an internal manager who was really sharp, knew what he was doing.
And one day he got a call from the, from the owner of the company. So, you know what, I’m tired of working with the other guy. Um, I’m tired of the whole business. If you want to buy the business, you’ve got a week to, we could do so. And you know, so he went from suddenly being this, you know, a machinist and the guy on the shop floor.
It was, you know, running some components, isn’t this, to having this opportunity to really, and you know, when you think about it, it’s a life changing opportunity to go to suddenly have the ability to buy this very successful business. And so, you know, went home, talked to the back to his wife and they made the decision to jump in.
And buy it. So, you know, it has had some challenges with it because of the, of the timeline and the, you know, the lack of sophistication that the, that the buyer had. But, you know, he’s done very well with the business over that period of time, you know, being in the right place at the right time on internal sales like that.
I actually have a friend of mine, um, that. I’ll give you a very specific example. So he works at a place he’s worked for several years. He enjoys the line of work that he does, and the business owner, admittedly, is kind of going through a personal crisis. You know, they’ve had legal issues, they’ve had relationship issues.
And so the business is kind of falling apart because of the owner’s personal problems. And. The, the owner has, uh, you know, verbalized a potential interest in selling whether it was in, in, in a passing comment to the internal team. Um, but my friend, I was super nervous about bringing it up, even though there’s a clear opportunity there.
Um, do you have any advice to somebody like that to, to broach that conversation and how do you get that discussion started? Yeah. So, I mean, I, and I hate to plug the book here, but this is a kind of like one of the central themes of the book. My father and I wrote called buying out the boss. The successor’s got a succession planning, which walks through the whole process of from a buyer’s perspective inside in one of those chapters is entitled, you know, opening Pandora’s box, you know, which is exactly what we, we call this because once you, once you step forward and say, I’m interested in buying or that owner comes and says, I’m interested in selling to you.
You really can’t go back to the way things once were. So if you’re gonna, if you’re gonna do it, if you’re going to approach that conversation, you know that the advice while I was here, you, you better be prepared to follow through. You know, if this is something you’re truly, truly interested in doing, and there’s been some hints in whispers, you know, be transparent, be candid about it, about your interests in your situation.
You know, one of the things that we see a lot of times when, when these conversations occur, what happens is there’s not a lot of transparency, you know, because there’s this casual relationship and we’re afraid to hurt someone’s feelings. Or, you know, if you’re that buyer, you know, an internal buyer, you have this sphere because not only is it like stepping up to try to buy a business, but.
Your job is probably on the line. You know, this is your, this is your livelihood. So it can, it can be pretty scary to start to have that conversation. But I think if you go forward with, um, sitting down in that conversation and laying out your thought process, why you want to buy the business, you know, what resources you have, what’s your, what you think you’re willing and able to do.
It makes it a lot easier for the owner to know that you’re serious. Worst case happens. They say, no. They at least then know that you had the, had the interest and they may come back to you. No. Why do you think that the relationship changes, like you said, once you open that Pandora’s box, um, is it because now there’s a potential for the owner to look at the, the interested buying candidate as some sort of competitor?
Or, or why does that change? That not so much as a competitor, but, but then now there’s this whole different dynamic in the relationship, because now we’re talking about the business itself. It’s no longer the boss employee relationship. Now we’re a buyer. And, you know, as a buyer, you have an obligation to be somewhat critical of that business, you know, and you have to, um, you know, protect your, your interest.
And when you’re an employee, I mean, you protect your owners, but your loyalty is generally to the, to the company. When you’re now the buyer, your loyalty has to be teeth, you know, to what’s best for you and your family. A bit of a different different level there. Um, so I think, yeah, that’s, you know, part of it, there’s also, I mean, there’s, there’s a fear factor.
Therefore, the, for the foreign owner of a company too, is what if I approach this conversation or this doesn’t go wrong now I’ve lost this key employee. They put, they put a lot of risks there. So, you know, they’re trying to be cognizant of, of that as well. You know, so they might tip toe around some things that need to be said or not be said, or, um, you know, a lot of times we do see some regret when they have those conversations because they weren’t really prepared for it.
And now they’ve put themselves in the scenario where you have no, I’ve got this great person who I’ve known for a long time has worked for me, has been good. Now they do want to buy the business. Maybe I’m not ready. So it, it creates some, uh, some tensions there. And plus we’re dealing with money. You know, which is adds a whole different component to it.
Uh there’s it’s a lot of money. It’s not just, well, we’re talking about a pay raise or ammonia. We could be talking about hundreds of thousands and millions of dollars on the line. Yeah. And I think this is a good opportunity as we get closer to wrapping up, you had mentioned your book buying out the boss.
What else would readers gain from that book? Readers are going to gain a clarity on the process and how to approach coach and internal, uh, transaction, you know, particularly from a, from a, a buyer standpoint, it’s written from that perspective, although it’s very valuable for a seller to understand standard as well, you know, in a.
An internal buyer. Doesn’t have, I have the leverage that, uh, the seller does, you know, they’re typically younger. They don’t have the resources. They don’t have probably the advisor network. They’ve never done this before, in most cases. Whereas that seller, you know, they’ve been in business a long time.
They have a team of advisors who have been advising them. They don’t have to sell necessarily. They’ve got more money, you know, they’ve got a lot more control. So understanding, you know, we call, we have a section entitled, you know, the 12th, the 12 laws of, of insight deals, you know, and looking at all those different things that could go wrong and how to deal with them.
That’s everything from, you know, how to build your advisory team to how to deal with, uh, you know, the ego that you, that you’re going to come across. And, um, So all these different pieces that come together. The other thing that we talked to about in the book is, but what happens once you’ve bought the business?
You know, there’s a lot of a tendency of buyers to want to go in and change things immediately. You know, so it’s, well, how do you make sure that you do this in a right way? So you don’t lose, lose a hearts and minds and, you know, kill the golden goose that you bought here. There’s a lot of talk about the legacy costs, you know, uh, privately held businesses, you know, owners have a tendency to make a lot of side deals or have kept the employees on at a sentimental reasons or a lot of things that as a new buyer, you don’t have the, uh, The ability or the willingness to, to do so.
So you’ve gotta be careful with those legacy costs, covers all those things. Those are really interesting perspectives. Um, uh, as I mentioned earlier with the VC company approaching me, um, some of those came to mind during, during those discussions and there are things that I don’t think you’d even think about.
So I think it’s really great topic to cover in your book. Thanks. Well, Michael, I appreciate your time, Michael van everybody. I’m going to give you a couple of seconds to tell us how to find your book. Tell us about your website, any other contact information you want to put out there for us? Yep. So you can find firstname.lastname@example.org.
That’s our main website for our company and the book can be email@example.com. You can purchase the book there and if you use the promo code, be the boss. You can get $5 off the price of the book. Very cool. And that’s van V a N N two N. Stash, group.com. Buying out the bus.com. Thanks so much, Michael.
Thanks for having me, David. It’s been a pleasure.